Friday, December 18, 2015

Nigeria no longer has resources to fund oil industry

The Federal Government stated, yesterday, that the country no longer has the resources to fund the oil and gas industry, and is therefore, considering and developing new models of financing the industry in the days ahead.

Speaking at a town hall meeting in Abuja, Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, said in January 2016 the final decision on the fate of the country’s refineries would likely be made, while it had also concluded arrangement to adopt a price modulation mechanism that would see it setting a price ceiling of between N87 and N97 per litre for Premium Motor Spirit, PMS, also known as petrol.

Kachikwu, who doubles as the Group Managing Director of the Nigerian National Petroleum Corporation, NNPC, also disclosed that he had received the Presidency’s approval to commence the final phase of the restructuring of the NNPC, which would see the corporation unbundled into four components, while about 1,100 of NNPC headquarters’ staff would be disengaged.

On the issue of paucity of funds, Kachikwu said: “Financing is going to be a key component of our goal, because new models of financing would have to emerge. The country does not have the sort of resources to continue to fund the oil industry. As we go upstream, we are going to begin to see a lot of innovative financing mechanism to provide funding for the oil industry.

“My dream, if I achieve it, is that by the end of 2016, we would completely exit cash calls and be able to find ways to help support our business and get a lot more autonomy in terms of running the industry and report, basically, profit to the Federal Government.”

Unbundling of NNPC into four companies

He added that the unbundling process would see the NNPC broken down into four key components, namely: the upstream company, downstream company, the midstream company, which is gas and power marketing, and the refining group holding company.

He further stated that one of the major restructuring efforts would be in making the headquarters operations cost effective, hence, about more than half of its 2,200 core headquarters staff would be whittled down, with a lot of the affected staff assigned to the subsidiaries to help make the units more efficient and profitable.

“This is because we have very strong subsidiaries; some of them have not even taken off. We want to put a lot of energy around units that can generate profit for us and hopefully, collectively, we are going to take the entire industry along that line,” he said.

In addition, Kachikwu stated that come January 2016, strategic decisions would be made in terms of what areas of the country’s refineries would be closed to allow for full re-kitting before reopening them for operations, while it would also be considering the best operating model for the refineries.

He said: “Ultimately, technical support, technical services, and technical joint venturing would also be models. We would be looking at and reviewing in terms of the refineries. The whole idea is find the funds, find the right skills that you need, support the skills that you have and try to give out, real-time, above 90 per cent consistent performance in refining.”

On fuel subsidy removal

On the issue of fuel subsidy removal and subsequent hike in the price of PMS, also called petrol, Kachikwu stressed that at no point did he say subsidy would be removed, adding that instead, a flexible management of the pricing system would be introduced to ensure that we are as close to what the prices of petrol are today, but also to ensure they are reflective of what the price of crude is.

“One thing we are very committed to next year, is to reduce the level of Federal Government subsidy, if any, to the industry, so that the industry can grow on its own strength. We can do that without the mechanism of saying subsidy is being removed or whatever, but have a benchmark approach to setting prices. We are going to see a lot more quarterly type analysis of what prices would go for the downstream industry, relative to the price of crude oil.

“The report that fuel is going to sell for N97 was not correct. I did not say refined products will sell for N97. I said between a band of N87 and N97 per litre, we are going to be looking at prices. Today, the prices are largely close to N87, so there might be no need to change prices.

“By January 23 it may go up slightly; March it may go up slightly too; by April it may come down. It is all a dynamics of what the price of crude is. I have not put an exact figure. I and the Petroleum Products Pricing Regulatory Agency, PPPRA, will sit down and do those calculations to be able to announce what price PMS will sell for in January. We do not anticipate any major shift because of the price of crude today.”

NPDC to get marginal fields, targets 2.4mbpd in 2016

The Minister of State for Petroleum Resources also disclosed that the Federal Government was considering allocating a number of marginal oil fields to the Nigerian Petroleum Development Company, NPDC, if it performs creditably, so as to help it increase its crude oil reserves base.

He also disclosed that a much more focused audit would be conducted on the operations and activities of the NPDC, to ascertain its asset base and also determine whether it is increasing or depleting its reserves.

On the part of the NNPC financials, he said, “Most of the management accounts up to 2014 are fairly finished; we are now looking at external audits. Audits were last done in 2010. We have brought the management accounts up to current; the external audits are ongoing; the 2012 to 2014 audits we expect would be done by March next year, which would bring us likely current.

“And, hopefully, next year, we will also finish the 2015 audit which will bring us right where we should be. So by June or July, we should have, quite frankly, all the results that NNPC needs.”

Kachikwu further maintained that the focus of the Federal Government was to get the NNPC back to profitability to ensure the sustenance of the company, while it is also targeting an increase of Nigeria crude oil production to 2.4 million per day in 2016.